LIQUID BATTERY

Is metal battery technology the next game changer? Bill Gates has put some of his money behind the concept supporting a Massachusetts company to commercialise and grow its long duration energy storage systems.

Ambri has obtained $196M in funding from its largest shareholder, Bill Gates with Reliance Industries Limited from India and various other institutions including a Japanese Energy Fund.

Currently Ambri’s batteries have capacities of between 400kWh and 1,000kWh. 250kW batteries can provide storage from 4 to 24 hours.

Liquid metal batteries are constructed of a liquid calcium alloy anode, a molten salt electrolyte, and a cathode comprised of solid particles of antimony. The material used in the construction are relatively low cost and easy to assemble keeping the overall price down.

Ambri claim calcium and antimony electrodes are less than one third the cost of lithium, nickel, manganese, and cobalt currently used in lithium-ion batteries.

The new battery technology is also likely to last 20 years with very little performance degradation over time.

Batteries are likely to cost up to 50% less than equivalent lithium-ion systems from 2022 to 2030.

The longer-term plan for Ambri is to construct high volume manufacturing facilities in the United States and globally while in the short-term Reliance New Energy Solar will develop and manufacture the batteries in India.

ORIGIN STILL IN THE RED

More bad news for electricity retailers with Origin Energy announcing an impairment of $1.6B after further writing down the value of its generation assets and reducing the value of its renewable energy contracts.

In a statement, Origin said the write downs were a result of falling wholesale prices, mostly driven by the influx of new wind and solar projects. High gas prices also reduced the returns from their fleet of gas-powered generation.

Origin owns the largest coal fired generation unit in the NEM, so the market pressures weighed heavily on the balance sheet. Origins large exposure to the non-renewable segment of the market through its Eraring coal fired power station which resulted in a $583M post-tax impairment. This comes because of Origin’s assumption of a lower outlook for wholesale electricity prices driven by new supply expected to come online, including both renewable and dispatchable capacity, impacting the valuation of the generation fleet, particularly Eraring Power Station.

Eraring is expected to be the cause of much of the impairment, but the gas-powered generation (GPG) units did not fair much better. The GPG were affected due to the increased cost of gas and the decrease in the spot and contract electricity market price.

Strategically Origin has chosen to source renewable energy through PPA rather than build physical generation so are not exposed to the physical renewable market. Origin was an early mover in the renewable PPA space so the PPA’s on their books are very expensive compared to what the market offers are today. This has resulted in Origin writing down some of the value of these existing PPAs.

Origin says it will write down $995M in value of goodwill for these renewable PPA’s and the gas contracts that are out of the money. Origin expects the spot market price to be up to $20/MWh below where they previously anticipated the price to be.

Origin expect their FY2022 profits to be lower than expected at $450- 600M which will again be largely supported by the LNG export part of the business.

On a positive front, Origin expects the market to recover in FY2023 where earnings are expected to increase by $150-250M on the back of a material rebound in energy market earnings.

NEM BACK IN BLACK

On Wednesday last week the Energy Security Board (ESB) released a statement outlining that they had finalised advice on the redesign of the national electricity market (NEM) and handed the report to the Energy National Cabinet Reform Committee. This advice comes from a 2019 request to redesign the market to support the orderly transition to a modern energy system that allowed a rapid increase in the growth of large and small scale renewable energy.

Details of the advice is not publicly available but wording in the media release indicates that coal fired generation will play a key role in the transition. The statement outlines that there must be a coordination of the exit of aging coal fueled generation to maximise the opportunities and minimise risks associated with the transition to deliver affordable, smart, and clean energy.

The ESB consulted widely with industry stakeholders, conChanges to the generation mixsumer bodies, academics, government bodies and interested parties over the last two years. An options paper was released in April and the final advice is expected to closely reflect the options discussed.

Key areas we expect to be tackled in the final redesign advice is preparing for the older coal fired generation retirement, backing up power system security, unlocking benefits and opening the grid to cheaper large-scale renewables.

In preparing for the retirement of the older coal fired generation, the ESB want to give an incentive for the right mix of resources including renewables and non-renewable generation. This was to restore confidence in consumers that energy will be available when required and the mix will include intermittent generation like wind and solar as well as firm dispatchable generation like gas.

To tackle the need for a more secure power system, the ESB will require different ancillary services like inertia, voltage, and frequency control. A market for these services will be required to ensure the procurement and dispatch of these services save money while keeping the network electrically secure.

Further work will also include unlocking the benefits for all energy consumers to gain the advantages of rooftop solar PV, batteries, and smart appliances. Improvement in these areas may also include how consumers source their energy.

As generation is only part of the equation the need to reform the way electricity is transported is also a key redesign topic. Upgrading the network with the construction of transmission lines will reduce congestion and allow cheaper generation to be built in regional areas and improve the diversification of the grid by opening up more geographic locations.

The question most end users are asking is who is paying for all these improvements. As usual the end user will pay. The ESB is understood to be recommending capacity payments for electricity generators to remain online. These generators are likely to be the older coal fleet so consumers will be paying to keep higher carbon intensive technologies online rather than supporting renewables.

This situation will pay generators an available payment to generate when required. In reality, these units will not generate unless the market is at the point of load shedding.

Capacity payments are used in the Western Australian electricity market, under their current arrangements, generators receive capacity credits in line with their units generating capacity.

In the NEM if capacity payments are introduced, they will essentially offset the Reliability and Emergency Reserve Trader (RERT) costs currently used to provide a similar service.

EDGE NEWS – JULY NEWSLETTER

In this issue we look at the following;

  • We recently contracted 3 of Brisbane’s Largest Towers. How do we do it?
  • What is causing the increase in the spot &futures market prices?
  • What is aggregated electricity procurement and should you do it?

National NAIDOC week was celebrated during July and Edge acknowledge the Turral and Yuggera peoples as the traditional owners of the land on which our offices sit. We pay respect to elders past, present and future.

CHANGES TO THE GENERATION MIX

Last Tuesday saw a new record set for wind powered generation with NEM wide production reaching 5,899MW late in the afternoon. Wind made up 20% of the total generation at the time and on occasion peaked to 26% of NEM wide generation. As seen from my market commentary in recent weeks we have seen large fluctuations in available generation from intermittent sources such as wind and solar. In the past 6 months although peak wind production reached 26% it has also reached a low of just 2%. As more wind farms come online and are built across different regions, we will see more diversification of output. Currently Victoria leads the pack with the most wind generation followed by NSW and SA with TAS and QLD only contributing small amounts of wind generation.

In line with the increase in renewable generation, last year operational demand increased by 350MW primarily driven by cooler Q2 conditions and the opening up of the economy following the Covid lockdowns the previous year. LNG export prices have also increased as the world economy improved, this led to an increase demand in QLD for electricity in the gas production value chain. Overall wind and solar generation have reached record highs peaking at 57% market share in April.

Although the average operational demand has grown, the increased penetration of roof top PV reduced demand by 298MW between 10:00 and 14:30. Generation from intermittent sources such as wind and solar reached a record 7,368MW in the second quarter, 457MW more than the same quarter a year ago.

Coal fired generation dropped for a few reasons over the quarter, initially coal generation was being offset by renewable generation then interruptions in coal supply and unit failure lowered production.

The largest contributors to these reductions where Victoria’s Yallourn power station where flooding in the neighbouring mine reduced the output and a catastrophic failure at Queensland’s Callide C4. Following the failure of Callide C4, network protection took out a significant amount of coal units over the next couple of hours while the network was reinstated to isolate Callide power station. As a precaution the undamaged coal fired units at Callide remained offline for the following weeks while the cause of the initial failure was investigated.

With low and sometimes negative prices during the day due to high levels of rooftop PV, large scale solar and wind, the remaining generators tried to extract value from the morning and evening peaks. Historically this would have been taken up by coal fired generation but in Q2 gas powered generation (GPG) operated more due to the scarcity of coal fired units.

A record amount of 57% renewable generation occurred at 11:30 on 11th April, this was made be solar, roof top PV, hydro, and biomass, and was 1% more than the previous record seen in October 2020.

Although renewable generation has been high, restrictions on the network are limiting further output. Curtailment occurred for about 4% of semi-scheduled intermittent generation which was higher than Q1 primarily due to higher negative prices. Intermittent generation now their output at times of negative pricing to limit their exposure to the market. We also see an increase in the amount of curtailment resulting from network congestion and network constraints. In regions with very high levels of renewable penetration such as South Australia saw intermittent generation curtailed to manage AEMOs System strength concerns.

MINING EXEC JOINS RENEWABLE AGENCY

Scott Morrison and his Minister for Energy and Emissions Reduction continue to appoint mining executives to the Australian Renewable Energy Agency (ARENA). The next to be appointed is Stephen McIntosh from Rio Tinto. Fellow board member John Hirjee is also a former Rio Tinto executive.

As Rio Tinto is one of Australia’s largest coal producers, opponents to the appointments find it hard to understand how these executives can add value to the ARENA board.

However, Minister Angus Taylor said “that the addition of McIntosh would bring to the ARENA board experience in the production of the materials used in clean energy technologies like electric vehicles and battery storage”.

Taylor went on to say “Mr McIntosh is a former Rio Tinto Group Executive with experience in green metals, wind, solar and batteries. He has also worked across hydrogen and carbon capture technologies during his time with the company.”

Darren Miller, the CEO of ARENA, has had his contract extended for another three-year term and will work with other senior staff and board members to provide funding into the development of new clean energy technologies.

Questions have been raised about if ARENA is distributing its funding fairly with Rio Tinto awarded funding for a feasibility study into the use of Hydrogen at its Yarwun alumina refinery and the funding of the Kidston pumped Hydro project where renewable projects in the region were rejected.

BILLION DOLLAR GREEN ENERGY HUB

Spark Infrastructure, the partial owner of SA Power Networks, Transgrid, Powercor, CitiPower and the Bomen Solar farms is looking at developing a 2.5GW renewable energy hub in the middle of the South West Renewable Energy Zone (REZ) in NSW.

The Dinawan Energy Hub is strategically situated along the route of the planned interconnector between South Australia and NSW. The EnergyConnect project will be a 330KV interconnector running between Wagga Wagga and Robertstown in South Australia and will open up more than $20B of new renewables projects.

The Dinawan Energy Hub will be located halfway between Coleambally and Jerilderie and due to its location will support the existing network and the Humelink and Karanglink interconnectors.

The hub is expected to be completed by 2025 and is expected to include 1GW of wind, solar and battery storage. The $1.5B project will be undertaken in stages with the first stage expected to

commence construction in 2024.

Spark Infrastructure have completed the project identification stage of the development and now will undertake engineering studies and community consultation. The final investment decision is expected in 2024.

In some ways the Dinawan Energy Hub will compete with the NSW government’s plans to develop the REZ however Spark infrastructure believe the REZ and the energy hub can be developed together.

Spark Infrastructure is also in the news with a potential takeover bid for the multi-billion-dollar business.

Leading global investors including Kohlberg Kravis Roberts (KKR) and Ontario Teachers’ Pension fund have showed interest in investing in renewable energy and infrastructure projects in Australia.

It is understood these investors are looking at investing $5B to take over Spark Infrastructure.

If the takeover goes to plan, KKR and Ontario Teachers’ Pension Plan may add the Australian market to their target markets having recently bought a stake in Finland’s largest electricity distributor. KKR is also in the process of buying John Laing, a developer with interest in renewables assets in Australia.

BIGGER BATTERIES AND LARGER STORAGE

Back in 2017 following the black out of South Australia, the Tesla big battery was announced as the largest lithium-ion battery in the world. Weighing in at 100MW/150MWh the unit was big and provided enough storage to get regions through short duration period of high price of low availability. At the time, most people in Australia thought of batteries as a small segment of the industry and did not predict batteries to make any meaningful impact on the market for the next 10 to 20 years.

The Tesla big battery has now grown to 150MW/194MWh with the addition of extra batteries but has lost its title as the world’s largest and is likely to lose the title as Australia’s largest battery with Neon installing a 300MW/450MWh big battery near Geelong.

Now even Australia’s newest largest battery is about to be pushed off the top step as large scale wind and solar projects are installing larger, high-capacity batteries.

Most large-scale batteries in Australia have not been operating as storage devices, instead offering a service to “time shift” generation out of intermittent generation such as solar or wind to the time where the energy is required and returns better prices. The big batteries have predominantly been operating in the frequency market where they deliver network services such as frequency control ancillary services and synthetic inertia. To provide the network service the batteries operate for short sharp periods and as a result do not require large amounts of storage duration. As the competition in the network services segment of the industry increases the price for these services has reduced. Battery developers are now focusing on “time shifting” to provide better return for their projects rather than being exposed to low solar hour prices.

As coal fired generators retire the “duck curve” will deepen opening more opportunities for batteries to time shift the wind and solar generation into the evening peaks.  Developers are now looking for large duration storage to optimise their returns over the evening peaks. It now appears a 4-hour storage duration is the norm.

In recent weeks we have seen the large market players with significant thermal generation installed entering the battery developer market. Energy Australia is planning a 350MW big battery with four-hour storage at Yallourn.  AGL is constructing a 250MW big battery with four-hour storage at its Torrens Island site in South Australia which has announced the mothballing of its gas units. AGL also plans to replicate the 250MW battery at its Loy Yang coal site in Victoria. At Eraring, Origin is planning to install a big battery to offset generation when the coal fired power station closes.

The question is, if “time shifting” occurs, the times when the battery charges will likely raise spot prices as demand increases and the evening peak prices should drop. To make money battery operators will need to arbitrage the charging cost with the price they receive when they discharge. With the increased penetration of wind and solar generation into the generation mix the spot prices during the solar hours are likely to fall further however with many large-scale battery developers still heavily reliant on coal fired generation the optimisation of their exist portfolio will be interesting to see.

EDGE IS HELPING BUSINESSES TO STEP UP THEIR CLIMATE EFFORTS

The world is changing……………………. you only have to look out the window, to see the impacts of this. No matter how you think it is occurring or who you think is contributing to it, climate change is real.

Over the last decade it has been more evident that Australia is being impacted by climate change. We have seen higher temperatures, worsening droughts and recently parts of Australia have been impacted by the worst floods in a decade. Australia has always been affected by extremes in the weather, but science shows the impact and regularity is increasing.

At Edge part of our role is to advise our clients on how to best manage risk. This is not always financial risk as most people would assume but, indirectly climate risk. This is the biggest risk many companies are facing, and this directly relates to financial risk.

Investors are starting to push companies to align their operations towards emission reduction targets and the use of sustainable practices. Many companies across Australia are pledging to reduce emissions to ‘‘net zero’’ by 2050 however, many do not have a clear strategy to reach this target.

Edge has and is currently assisting our clients with the development of low carbon business models.

When investors are weighing up the performance of a company, they are now allocating more weighting to how the company manages it sustainability.

Edge works with a range of clients including, some of the largest mining and utility companies worldwide and over the last couple of years we have developed strategies to decarbonise their businesses.

The procurement of renewable energy is just one way in which Edge is assisting our clients. We have developed sophisticated mechanisms to provide the client with access to renewable energy, environmental certificates and emission offsets while managing the price risk and uncertainty in the energy market.

PIPELINE RUNS DRY FOR WIND

On Friday BloombergNEF released its latest Global Wind Market Outlook. It showed wind farm development has slowed in Australia with no wind farm project reaching financial close to date in 2021.

Delays in the projects are resulting as investors are more cautious to put money into projects that could be exposed to lower spot prices and potentially constrained off due to the continuing network challenges. In the previous your Covid-19 impacted our lives and slowed developments. Last year only 449MW of wind projects reached financial close, significantly lower than the boom year of 2018 when 2,500MW reached financial close.

Based on AEMO data, there is substantial pipeline of wind projects under construction across the NEM with 3,600MW being built. Many of these projects are experiencing delays due to the approval of connection agreements in some cases requiring additional infrastructure to be added.

BloombergNEF analysis predicts up to 700MW of generation could be delayed and not see first generation until 2023. It is understood we may see some progress in wind farm development before the year is out, with the MacIntyre wind farm and the Kaban Wind farm both approved by AEMO, the next barrier is financial close.

As system strength increases across the NEM due to greater interconnection and more stringent connection requirements the flow in the pipeline will increase. With the announcement of Project EnergyConnect which will link between South Australia and NSW it is expected to lead to more than $5B in new projects.

NSW is adding new Renewable Energy Zones (REZ), and these REZs are expected to allow up to $30B of new projects, however development has stagnated as developers wait for the REZ roll out.

While lower electricity prices are good for end users, the low-price environment is making investors nervous resulting in banking a project hard to achieve. With the power purchase agreement (PPA) market seeing more interest from large companies looking to reduce their carbon footprint we will continue to see deals being done and projects starting to be built through the remainder of 2021, 2022 and beyond.